EUR/USD: EUR slumps on the dollar recovery and dovish ECB comments

• The EUR is on the back foot amid a recovery in USD. EUR/USD drops from a 3-year high.
• ECB’s Cœuré sounds dovish today.

EUR/USD is now trading around 1.2435 in the US session, dropping by almost 0.55% on a US dollar recovery after the pair reached the highest since December 2014. The EUR is also well off the earlier high of 1.2554.

The USD began its recovery late in the Asian session today as the Japanese government said that it is watching the Yen's move with a “greater” sense of concern and is ready to act (intervene) when needed. Also, the overall US economic data was positive for the dollar today.

Apart from the dollar turnaround story, EUR is also under pressure on some dovish talks by ECB’s Cœuré, who said that the ECB would not raise its interest rates before QE bond buying ends. Cœuré also pointed out that the ECB is unanimous on a policy sequence and will discuss the policy language in early 2018. The central bank sees no reason for concern over the market slump.

However, the above comments are nothing new, and the market is confident that the ECB will eventually normalize its policy rate gradually from H1 (2019) after a full QE tapering by December’2018, Cœuré's comments may have acted as an excuse to sell the EUR after it soared to a multi-year high.

Earlier, the EUR has also received a boost from upbeat comments by Merkel about the prospect of German “grand coalition” government and the recent EU economic activity. Merkel says “there is a good chance that the SPD members will approve the coalition deal. The euro-zone is beyond the period of the bailout programmes with Greece making major progress and all the economies are growing. Future EZ policy will be based on solidarity and clear rules”.

On the economic data front, German WPI for January came upbeat at 0.9% against a market estimate of 0.2%; prior: -0.3%. The surge in German WPI (wholesale price index) is positive for the CPI in the coming days and also for the EUR.

Technically, EURUSD now has to stay above 1.2380 area; else 1.2200-1.2192 zone may be on the cards soon. On the topside, the 3-year high of 1.2554 is of importance.